IP Briefing: Decision of the Supreme Court in Bailey v Angove Pty

The Background

D&D Wines International Limited (‘D&D Wines’) was, prior to entering administration (and subsequently liquidation), the sole UK agent and distributor for an Australian wine company called Angove Pty Ltd (‘Angove’). The contractual relationship between the parties was governed by an Agency and Distribution Agreement (‘ADA’) which provided for termination of the agreement in the event of either party’s insolvency. Shortly after D&D Wines entered administration, Angove served a termination notice on them.  Significant outstanding customer invoices payable to Angove were then collected by the administrators of D&D Wines and held in an escrow account known as the ‘Customer Fund.’

The English High Court was tasked with deciding to whom the funds belonged.  HHJ Pelling QC held that as D&D Wines had simply been acting as agent for Angove, the funds did not form part of their company property and Angove was entitled to receive the full amount held in the Customer Fund.  The case was then appealed to the Court of Appeal on the question of entitlement to commission.  The liquidators argued that D&D Wines should be entitled to recover its commission on the invoices on the basis that its authority to collect customer invoices survived termination of the ADA.  The appeal was allowed and a ‘constructive trust’ argument advanced by Angove was dismissed.

Angove appealed to the Supreme Court on the basis that D&D Wines’ authority as agent was revoked on delivery of the termination notice.  Angove again advanced their secondary position that in any case, the funds were held in constructive trust for them.

The Decision of the Supreme Court

The Supreme Court held that the agency relationship was not irrevocable and that the termination notice was immediately effective so as to terminate D&D Wines’ authority to collect outstanding invoices.  The court recognised that the general position is that authority is irrevocable even if the contract states otherwise, unless the agent has a relevant interest of its own in the exercise of his authority.  The following two conditions must be satisfied in order for this to be the case: (i) there must be an agreement that the agent’s authority shall be irrevocable; and (ii) the authority must be given to secure a proprietary interest or liability owed to the agent.  Neither of these factors applied in this case with the result that the court unanimously held that the agency agreement had been immediately revoked upon service of the termination notice.  It was particularly important that (i) the language of the contract did not indicate irrevocability; (ii) it would be ‘improbable’ that there could be an intention that the right be irrevocable, particularly as there was a mutual right of termination on insolvency, and (iii) Angove retained the ability to collect invoices itself.

The court went on, for completeness, to consider the constructive trust point (although given the decision made on the agency point, it was not strictly necessary to consider it).  The court found that no constructive trust existed in favour of Angove, not least because Angove had no pre-existing proprietary right to the funds.  Furthermore, the money had not been paid to D&D Wines in the mistaken belief that they were authorised to collect on behalf of Angove.

Advice

This case is useful as it reaffirms some of the well-established principles of agency law and provides guidance from the Supreme Court in relation revocability of authority, particularly in an insolvency context.  Although the issue of constructive trusts did not strictly require to be considered, the comments made in that regard are useful.  In particular, they cast doubt on some previous decisions and make it clear that a recipient of funds will not simply be considered to be holding the funds in constructive trust for another party simply because they will be unable to transfer the funds onwards as a result of pending insolvency.  Something more, such as fraud, theft or breach of trust is required.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc@bbmsolicitors.co.uk). This briefing note is current as at 8 February 2017 and is our understanding of the position described at that date.  Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).